Schnabel: Europe's growth needs Single Market and scale

Schnabel challenged the notion of Europe's decline, asserting its global leadership in quality of life, social protection, and democratic values.

She noted that happiness and life satisfaction consistently rank high, underpinned by strong institutions and accessible public infrastructure.

Addressing the transatlantic prosperity gap, Schnabel explained that lower European GDP per capita largely reflects less work rather than less productive work.

Europeans work approximately 40 days less per year than Americans, a choice that, if reversed, could increase euro area real GDP per capita by 21%, closing two-thirds of the income gap.

Furthermore, growth in Europe is more inclusive, with the top 10% of earners accounting for a significantly smaller share of national income compared to the United States, where income gains are concentrated in specific sectors and regions.

This suggests standard GDP comparisons overstate disparities, but persistent weak productivity growth remains a key challenge.

The speech highlighted diverging economic fortunes within the euro area.

Southern economies, once synonymous with crisis, have transformed into growth leaders, attracting record investment and experiencing impressive declines in unemployment.

Spain, for instance, has become a renewable energy hub, while Ireland thrives as a global hotspot for technology and life sciences.

This success is attributed to political choices, social resilience, and support from instruments like Next Generation EU.

Conversely, the euro area's traditional core, particularly Germany, faces headwinds.

Germany's real GDP per capita fell by 1.5% from 2019 to 2024, grappling with demographic change, elevated energy costs, and global competition.

Schnabel argued that Germany's weakness stems not from a collapse in external demand, but from sustained weakness in domestic demand, rendering its export-driven model less viable in a fragmented world.

Reforms in the early 2000s suppressed real wage growth, leading to increased corporate profits and savings that were largely exported rather than invested domestically.